Housing Market Impacts of Inclusionary Zoning

Many communities across the country face affordable housing challenges. An increasing number of communities are considering inclusionary zoning as a response. Inclusionary zoning programs, which require developers to sell a certain percentage of newly developed housing units at below market rates to lower income households, are politically attractive because they are viewed as a way to promote housing affordability without raising taxes or using public funds. Standard economic theory, however, suggests that such programs act like a tax on housing construction. And just like other taxes, the burdens of inclusionary zoning are passed on to housing consumers, housing producers, and landowners. As a result, inclusionary zoning policies could exacerbate the affordable housing problem that they are designed to address…
We also found that housing prices in cities that adopted inclusionary zoning increased about 2-3 percent faster than cities that did not adopt such policies. In addition, we found that housing price effects were greater in higher priced housing markets than in lower priced markets. That is, housing that sold for less than $187,000 (in 1988 dollars1) decreased by only 0.8 percent while housing that sold for more than $187,000 increased by 5.0 percent. These findings suggest that housing producers did not in general respond to inclusionary requirements by slowing the rate of single family housing construction but did pass the increase in production costs on to housing consumers. Further, housing producers were better able to pass on the increase in costs in higher priced housing markets than in lower priced housing markets.

Gerrit-Jan Knaap, Antonio Bento, and Scott Lowe

National Center for Smart Growth Research and Education

February 2008

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